We are finally getting around to updating Kawashima, the Supreme Court case involving the question of whether a conviction under section 7206 is a deportable offense under the immigration laws. The Court heard argument on the case back in November. A decision likely will be issued this spring. It’s hard to read which way the Court is leaning based on the arguments. Several Justices seemed to balk at petitioners’ technical argument that a false statement on a return (under section 7206) can be something less than intending to deceive the IRS (a crime involving “fraud or deceit” is deportable under the immigration laws — see our prior post).

The argument first focused on the Code’s “willfulness” concept and whether the requirement in section 7206 that the false statement be submitted willfully in fact turned an act that — without willfulness — might not be intended to deceive into something that showed intent to deceive. Petitioners’ counsel tried to focus the Court on the concept that intent to deceive required intent to induce an action or reliance and not merely intent to make a false statement. This position seemed to concern several Justices given that the false statement was on a document submitted to the government for a specific purpose (reporting taxes). The argument also briefly turned to the question of the case law — largely Tax Court case law — which historically held that a conviction under section 7206 did not automatically trigger the extended limitations period for fraud unless the IRS independently proved fraud. The Justices did not substantively comment on this point during petitioners’ time but came back to it during the government’s argument and it seemed to get some traction with the Chief Justice.

Petitioners’ counsel and Justice Scalia spent a substantial amount of time discussing whether the inclusion of both section 7201 and the “fraud or deceit” provision in the deportation law rendered the former superfluous if the government’s reading was adopted. This involved a discussion of the text of section 7201, which has long been textually framed as an attempt “to evade or defeat any tax” and does not specifically use the words fraud or deceit. While the Justices did not seem to be happy with the responses by petitioners’ counsel, an amicus brief submitted by Johnnie Walters — a former IRS Commissioner — deals with the history and meaning of section 7201 quite compellingly. And when questioning the government’s counsel, Justices Ginsburg and Kagan both seemed concerned that the government’s position could read one part of the deportation statute out of the law based on this historic reading of section 7201. This led Justice Breyer to introduce the idea that section 7206 does not seem to meet the common law definitions of fraud or deceit — a point not raised by counsel as best as we can tell — but something that could be relevant in determining Congressional intent.

Piercing through the government’s argument, Justice Kagan was able to get its counsel to admit that even the evasion-of-payment cases under section 7201 have to involve some sort of fraud in order to be prosecuted under that statute. Counsel also basically admitted that the IRS/DOJ has never prosecuted a section 7201 case that didn’t involve fraud. This triggered a question by Justice Breyer as to whether the government’s position would make every single perjury statute a deportable offense — something that would profoundly impact both defendants and the system. Justice Kagan then returned to the circularity of the government’s arguments regarding superfluity (a point we have made a few times previously).

As we said at the outset, it is difficult to see where all of this is going. Petitioners do seem to us to have the stronger case when you consider the historic meaning of section 7201 (which is fundamental to criminal tax practice) but the statutory text could be confusing when read outside of that context. We will update you as soon as we see a decision.

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Authors

Steve Dixon is a Member in the Tax Department at Miller & Chevalier. He specializes in controversy and litigation, representing taxpayers in the Tax Court and Federal courts.

Laura Ferguson is a Member of the Supreme Court and Appellate Litigation Group at Miller & Chevalier and has successfully briefed and argued six cases at the U.S. Courts of Appeals in the past two years. Ms. Ferguson also has extensive experience litigating complex, high-stakes tax cases at the Tax Court and federal district courts.

Alan Horowitz is the former Tax Assistant to the Solicitor General at the Department of Justice, where he briefed and argued numerous tax cases in the Supreme Court. He is currently the head of the Supreme Court and Appellate Litigation Group at Miller & Chevalier.